Beyond the Grave: The Preparation of Necessary Estate Documents

Benjamin Franklin once claimed, “If you fail to plan, you plan to fail.” In today’s ever-evolving world, it’s never too early to set your estate in order; no one is able to predict the events they will experience - good or bad. Estate planning is not necessarily a pleasant experience. Estate planning is often avoided as it is surrounded with the cold connotation of death. However, it allows for a peace of mind that you will be able to help your family even when you are gone. Estate planning not only ensures your assets will be passed to your loved ones the way you want, but it also ensures the transition goes as smoothly as possible.

After death, estate assets often go through probate. Probate is the legal process in which estate property is distributed either by the instructions laid out in the will or by the state’s succession laws. Without a will, probate can become increasingly costly and time consuming. Individuals can contest anyone’s claim to an item as well, thus leading to more court time and lawyer fees. Documentation is necessary to ensure your possessions are given to the correct individual. Otherwise, your third cousin twice removed from the other side of the country could contest the court’s decision and receive an heirloom meant for your child. Even if an individual has a will drawn, the will can be deemed inadequate or irrelevant and thrown out. Once possessing a will, you should renew it every three to five years to ensure it is still relevant to your situation.

Even if you don’t have assets to leave to your family, estate planning also entails filing documents explaining the financial and medical decisions you would like to occur in certain situations. Documents such as advance directives remove the uncertainty involving the medical decisions you would make were you able. While your family may not like the decisions you have laid out for them, you are saving them from having to make those tough decisions on their own. You have removed a large portion of the guilt they may have felt had they made a decision without the guidance of your health care directive. Despite the importance of having such documents, few actually have them on file: according to Dr. Katherine Courtright of the American Academy of Hospice and Palliative Medicine, only a third of Americans have an advance directive. Everyone over the age of 18 should obtain an advance directive; once an individual turns 18, his parents are unable to make medical decisions for him. If an individual lives far from his family and the family tries to contact the hospital, the family will be unable to gather any information because they no longer have legal authority over his medical care. If you have no documents regarding your medical care while incapacitated, the court will appoint a guardian for you. As with most things sent to court, this can be a costly and lengthy process that takes months to resolve - especially if someone contests the individual being appointed as guardian.

To avoid this outcome, a durable power of attorney (DPOA) can be drawn for use while incapacitated. Two types of DPOAs exist: those that allow the agent to gain access to financial assets and records and one that allows the agent to make medical decisions on your behalf. For younger, married individuals with living parents, medical decisions can become far more complicated than expected. If the individual is incapacitated, the spouse and the parents may disagree on the medical treatment - in this case, a judge is often brought in and must hear both sides before deciding on a course of action. A DPOA for healthcare would prevent this by having a named agent in charge of those decisions.

The world doesn’t stop while you are incapacitated - you still have financial obligations that need to be met. A DPOA of finances will ensure that the agent is able to pay bills, make deposits, or take required minimum distributions from accounts. Essentially, the agent will be acting on your behalf to address any financial issues that may occur while you are incapacitated. Of course, the implementation of a DPOA comes with risks; a DPOA of finances can be abused: if the document is not worded very specifically, the agent you have appointed can gain access to all of your financial assets. This is why prior planning and proper preparation is highly encouraged; along with strategically wording the document, you can safeguard against abuse through careful selection of your agent. You have the option to choose whoever you want - so long as they are willing - to act as your agent. Many spouses choose each other to act as agents. Otherwise, if you have a close family member or friend who you trust implicitly with your assets, be sure to appoint them. According to the National Adult Protective Services Association, one in twenty older adults report financial abuse - though the the number of unreported incidents are expected to be quite high. While this number isn’t specific to DPOAs, it is still worth considering when deciding who to appoint as your agent. You don’t necessarily need to go to an estate planning attorney to file a DPOA; however, it is recommended to ensure the document specifically addresses your needs and is well-written to prevent abuse of power when active.

Another decision regarding DPOAs is considering when they are activated. A DPOA can become active as soon as it is created and signed by all necessary parties, or it can be a “springing” DPOA and become active after a specified event - such as incapacitation. The latter option usually requires a physician and a witness to sign off on an affidavit declaring one’s incapacitation, but it can lead to peace of mind because your agent will only have the powers granted to them so long as you are incapacitated. You can also make the DPOA as broad or specific as you desire. The agent may be allowed to make any medical or financial decision asked of them, or they may only be given the authority to make certain decisions specified in the DPOA. These documents also tend to be state-specific, therefore, you should check your DPOA’s legitimacy in another state should you move or be away for work/vacation.

Along with DPOAs, you should consider having a living will. One such document, 5 Wishes, allows you to map out what medical treatments you want or do not want in the case that you are unable to make decisions personally. Not only can you decide what medical treatment you would like, but the document also allows you to discuss any emotional and spiritual desires you have as well: your comfort, how you are treated (how often you are alone, what the room is like, who is there), what you want your loved ones to know, etc. The form is very intuitive and can be filled out quickly by anyone interested. If you are incapacitated, the DPOA in accordance with your 5 Wishes document will provide your family with the necessary legal power and knowledge needed to provide for you according to your desires.

Two last things to consider while preparing your estate are naming beneficiaries to accounts you currently hold and creating a letter of intent. Some of your assets work outside of wills and require a beneficiary be named: IRAs, bank accounts, life insurance policies, trusts, etc. You should ensure there is a named beneficiary on all assets with this capability and then check every three to five years to ensure the named beneficiary is still the person you want to inherit those assets. Make sure the named beneficiaries match up with your will to avoid the possibility of someone contesting claims to assets after you’ve passed. A letter of intent can also be drafted as a means of explaining to the judge what you want done with your assets; this is typically used in the case that the will is thrown out. Having a letter of intent would further safeguard your assets from being left to individuals via the state’s laws.

Being prepared for the worst may seem morbid and unnecessary; however, if the worst does come to pass, your family would be grateful for your foresight to provide them with documents clearly laying out your wishes and giving them the authority to carry those wishes out. While there are a lot of documents involved with estate planning, each one serves the purpose of ensuring your assets are safe and distributed in the way you desire. An estate planning attorney will be able to guide you through the process of obtaining the documents and tailoring them to your situation.

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All written content on this site is for informational purposes only. Opinions expressed herein are solely those of Stuart W. Coats, President, Coats Financial Planning, Inc. Material presented is believed to be from reliable sources, and no representation is made as to its accuracy or completeness. All information and ideas should be discussed in detail with your individual advisor prior to implementation. Fee-only financial planning and investment advisory services are offered through Coats Financial Planning, Inc., a registered advisory firm in the states of Kentucky, Indiana and Florida. The presence of this web site on the internet shall in no direct or indirect way be construed or interpreted as a solicitation to offer financial planning or investment advisory services to any residents of any states other than Kentucky, Indiana and Florida. Coats Financial Planning, Inc. is legally empowered to solicit financial planning and investment advisory relationships only to residents of Kentucky, Indiana and Florida. The firm has acquired clients in other states through referrals of existing clients and from clients who have moved over time. Most states permit a firm not registered in their state to have a handful of clients in that state without registering in the state.